The Dow Jones industrial average closed above 12,000 for the first time
Thursday, a hard-fought milestone for a stock market index that has
struggled in recent years to recapture the momentum that came so easily
in the 1990s.
The breakthrough came without any dramatic leap, as the Dow hovered
just above or below 12,000 for two days. But the stock market has been
strong for weeks, and the new record reflects confidence by investors
in some large companies--even at a time when the economy is sending
mixed signals.
The Dow's latest milestone came on the
anniversary of Black Monday in 1987, when the Dow plunged 508 points
and also suffered its biggest one-day percentage drop in history.
The Dow finished that day at 1738.74.
The new record appears psychologically significant because the Dow had
been trapped for so long in recovery mode from the dot-com bust of
2000, when stocks topped out at 11,722. In the nearly seven years since
then, the index traded in the 11,000 range or well below it.
By comparison, it took a mere 24 trading days in the spring of 1999 to soar from 10,000 to 11,000.
Alexander Paris, president of Barrington Research Associates, said it
is human nature to focus on what are perceived as benchmarks.
"People view these as significant numbers, 12,000, 13,000, whatever," Paris said. "It just tells you there is upward progress."
The overall stock market actually was subdued Thursday, with the Dow rising 19.05 to close at 12,011.73.
The Dow, the most widely followed of stock indexes, consists of 30
brand-name stocks including General Electric, Citigroup and Coca-Cola.
It is more a measure of very large blue chip companies than the stock
market as a whole.
And for some people, such big and usually reliable companies look like a good investment right now.
"People are starting to see the value in good, steady growth," said
Richard Green, president of Briefing.com, a Chicago-based internet
financial information service. He said the stock prices of many large
established companies have not kept up with the increase in their
profits.
"We have a great environment of strong earnings growth and low interest rates," Green said. "Both right now are bullish."
While the Dow finished the day higher than ever before, the stock
market as a whole was much more mixed, with other indexes showing less
strength and some even declining.
The Standard & Poor's 500 barely moved, rising 1 point to close at 1366.96. And the Nasdaq was up 3.79, to 2340.94.
The unenthusiastic day for the broader stock market stemmed from some tepid economic reports.
The Conference Board's index of U.S. leading economic indicators rose
less than forecast in September. The Philadelphia Federal Reserve
Bank's general economic index contracted for the first time since April
2003.
Some market observers say one should not read too much
into the Dow's new high. While 12,000 has a nice ring, it remains only
a number.
"In the great scheme of things, it is not significant
at all," said Thomas Wirth, senior investment officer of Chemung Canal
Trust of Elmira, N.Y. "But there are psychological barriers."
The rise above 12,000 might brighten investor psychology and push
stocks a little higher, Wirth said. But he said inflation, the economy,
future interest rates, even the results of next month's election are
more significant.
For several years small-company stocks
outperformed those of large companies. But this year the Dow, the
preeminent measure of big business, regained its strength.
"This is normal--there are always favored groups," said Carl
Birkelbach, president of brokerage house Birkelbach Investment
Securities in Chicago.
Birkelbach, who has followed stocks
since the early 1960s, noted that in the great bull market of the 1990s
nearly everything went up.
That was unusual, he said.
In a typical bull market, investor interest rotates from one sector to
another. Medium-size companies showing vigorous growth might be favored
for a time, for example, and then attention might turn to small
companies with shares priced cheaply compared to the value of the
business.
Art Hogan, chief market analyst for Jefferies and
Co., said stocks this year are benefiting because energy prices have
declined from recent highs.
At the same time, he said, the
economy seems to be slowing a bit, and that pushes investors towards
stocks of large, recognized companies.
"You want known quantities," Hogan said.
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rmanor@tribune.com
